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Chapter 2 An Introduction to Cost Terms and Purposes
45) Classifying a cost as either direct or indirect depends upon

A) the behaviour of the cost in response to volume changes.
B) whether the cost is expensed in the period in which it is incurred.
C) whether the cost can be identified with the cost object.
D) whether an expenditure is avoidable or not in the future.
E) the inventory classification system.
Answer: C
24) Which of the following statements would be correct in a manufacturing business?
A) Completed goods are not normally included in the finished goods inventory.
B) Completed goods are part of the work in process category.
C) Work‐in‐process inventory, at the end of the accounting period, includes direct materials but not direct
labour.
D) Materials put into production are classified as work‐in‐process inventory.
E) There can be no beginning finished goods inventory.
Answer: D
25) Goods available for sale that are not in ending inventory
A) are included in goods available for sale in the next year.
B) are included in the work‐in‐process inventory at the end of the year.
C) are not accounted for until the next year.
D) are incorporated in the cost of goods sold amount.
E) are included in beginning inventory.
Answer: D
35) Which of the following is true of period costs?
A) They are also called fixed costs.
B) They are part of the cost of goods sold.
C) They are expected to benefit future periods.
D) They are costs incurred to generate revenue in a specific time period except the cost of manufacturing
accumulated as cost of goods sold.
E) For merchandising sector companies they include all costs not related to the cost of goods purchased
for resale.
Answer: D
7) The total of the costs assigned to a particular product for a specific purpose is called
A) direct cost.
B) inventoriable cost.
C) marketing cost.
D) product cost.
E) prime cost.
Answer: D
9) Product costs used for pricing and product‐mix decisions generally include
A) manufacturing costs only.
B) design costs plus manufacturing costs.
C) all costs incurred along the value chain.
D) distribution costs only.
E) prime costs but not conversion costs.
10) Product costs used for external reporting under GAAP include
A) manufacturing costs only.
B) design costs plus manufacturing costs.
C) all costs incurred along the value chain.
D) prime costs but not conversion costs.
E) only conversion costs.
Answer: A
Chapter 3 Cost‐Volume‐Profit Analysis
15) Cost‐Volume‐Profit analysis is useful for
A) helping managers to answer ʺwhat‐ifʺ questions.
B) implementing a differentiation strategy.
C) eliminating uncertainty about external factors, such as interest rates.
D) for long‐range planning.
E) assigning costs to products.
Answer: A
23) The contribution income statement highlights
A) gross margin.
B) products costs and period costs.
C) different product lines.
D) variable and fixed costs.
E) gross margin and net operating income.
Answer: D
4) Operating costs include
A) interest costs.
B) income taxes.
C) only operating expenses.
D) operating expenses but not cost of goods sold.
E) operating expenses and cost of goods sold.
Answer: E
6) Which of the following statements about net income (NI) is true?
A) NI = operating income ‐ income taxes
B) NI = operating income + operating costs
C) NI = operating income + non‐operating revenues less non‐operating costs
D) NI = operating income less Cost of Goods Sold
E) NI = operating revenue less Cost of Goods Sold
Answer: A
7) Gross margin in a merchandising organization is considered to be
A) the same as the contribution margin.
B) all revenues less costs which do not change with respect to an output‐related driver.
C) all revenues less cost of goods sold.
D) all revenues plus costs which change with respect to an output‐related driver.
E) all revenues.
Answer: C
9) Which of the following statements about using the equation method to determine the break‐even point
is true?
A) Operating income in the equation is set equal to the target income for the year.
B) Operating income in the equation assumes that fixed costs are nil.
C) Revenue in the equation includes only operating revenues plus fixed costs.
D) The number of units required to reach the break‐even point tends to be higher (as it incorporates total
costs) using this method than when using the Contribution Margin method.
E) Operating income in the equation is set equal to nil.
Answer: E
20) To determine the effect of income tax on a decision, managers should evaluate
A) target operating income.
B) contribution margin.
C) tax as a variable expense in determining contribution margin.
D) selling price.
E) target net income.
Answer: E
12) Which of the following factors would be relevant in classifying costs as fixed or variable in a specific
decision situation?
A) if the time horizon is short or long
B) the relevant range of the next best alternative situation
C) the mix of revenues
D) the sales mix
E) if the time horizon is shorter in another alternative
Answer: A
19) Events, as distinguished from actions, would include
A) personnel policy options.
B) decisions on time schedules.
C) decisions on direct material vendors.
D) a financial recession.
E) price changes of the companyʹs products.
Answer: D
13) A revenue driver is defined as
A) any factor that affects costs and revenues.
B) any factor which could cause a change in revenue.
C) any factor which could cause a change in the costs of a related revenue object.
D) any factor which does not affect costs associated with a revenue.
E) any factor that changes when revenue changes.
Answer: B
Chapter 4 Job Costing
20) Which of the following includes both traced direct costs and allocated indirect costs?
A) cost tracing
B) cost pools
C) assigned costs
D) cost allocation
E) cost recording
Answer: C
Chapter 5 Activity-Based Costing and Management
7) Using a broad average to allocate costs to products is called
A) activity-based costing.
B) refined costing.
C) cost smoothing.
D) product undercoating.
E) job costing.
Answer: C
16) Activity-based costing is a technique to improve the reliability of cost assignment
A) to work-in-process inventory.
B) from direct cost pools to distinct types of outputs.
C) from both direct and indirect cost pools to distinct types of outputs.
D) to all types of inventory.
E) from indirect cost pools to distinct types of outputs.
Answer: E
19) Which of the following is true concerning selecting a cost-allocation base in an ABC system?
A) Cost-allocation bases are not relevant in defining the number of activity pools.
B) All costs can be directly identified with a specific activity.
C) The allocation base chosen may be constrained by the availability of reliable data.
D) Costs may need to be allocated to services first, before the costs of services can be allocated to
activities.
E) Output unit-level costs cannot be related to a cost-allocation base.
Answer: C
14) Which of the following is relevant concerning cost hierarchies?
A) activity levels
B) determining whether costs are variable or fixed
C) costing on the value chain
D) separating inventoriable costs from period costs
E) minimum cost required for a particular process
Answer: A
15) A four-part cost hierarchy includes
A) market-sustaining costs.
B) research and development costs.
C) manufacturing-level costs.
D) output unit-level costs.
E) period costs.
Answer: D
20) Resources sacrificed on activities undertaken to support product lines are which of the following?
A) market-sustaining costs
B) output unit-level costs
C) batch-level costs
D) facility-sustaining costs
E) product-sustaining (service-sustaining) costs
Answer: E
26) With traditional costing systems, products manufactured in small batches and in small annual
volumes may be ________ because batch-related and product-sustaining costs are assigned using
unitrelated
drivers.
A) overcosted
B) fairly costed
C) costed the same as in activity-based costing
D) undercosted
E) ignored
Answer: D
29) A cost hierarchy describes
A) a technique for direct cost tracing.
B) the process of arranging costs by importance.
C) the logic of segregating costs by value-chain classification.
D) the logic of separating one indirect cost pool into multiple pools according to activity level.
E) a technique of differentiating fixed and variable costs.
Answer: D
6) Which of the following is not a feature of costing system refinement?
A) budget costing allocation
B) cost allocation bases
C) direct cost tracing
D) indirect cost pools
E) activity cost drivers
Answer: A
8) Which of the following statements is true regarding activity-based costing systems?
A) ABC systems accumulate overhead costs by departments.
B) ABC costing systems are less complex and, therefore, less costly than traditional systems.
C) ABC costing systems can be used in manufacturing firms only.
D) ABC costing systems have multiple indirect cost allocation rates for each activity.
E) ABC systems provide a greater level of detail to understand how an organization uses its common
inputs differently for distinct products.
Answer: E
9) Direct cost tracing will accomplish which of the following?
A) identify homogeneous costs
B) classify more costs as indirect
C) focus on the cause-and-effect criterion when choosing allocation bases
D) expand the number of indirect cost pools
E) classify as many of the costs as direct costs, as is economically feasible
Answer: E
12) Which of the following statements does not represent the logic of an ABC system?
A) Activity cost allocation bases are the activity cost drivers of costs in the activity cost pools.
B) A strong cause-and-effect relationship between overhead costs and the cost allocation base is essential.
C) The requirement to measure cost allocation bases of different activities used by different products is
essential.
D) The overhead used by different products is not important, as it is a fixed cost.
E) A greater level of detailed information concerning costs will help organizations be more efficient.
Answer: D
13) In an activity-cost pool,
A) a measure of the activity performed serves as the cost allocation base.
B) the costs have a cause-and-effect relationship with the cost-allocation base for that activity.
C) the cost pools are homogeneous over time.
D) costs in a cost pool can always be traced directly to products.
E) each pool pertains to a narrow and focused set of costs.
Answer: B
14) How does direct cost tracing improve cost accuracy?
A) It identifies the cause-and-effect relationship between direct costs and indirect costs.
B) It identifies the cause-and-effect relationship between activities and non-activities.
C) It reclassifies costs or costs pools that vary with the quantity of a single activity cost driver as direct.
D) It makes no assumptions about the cause-and-effect relationship between direct costs and activities.
E) Because with a greater number of cost pools, it does not have to be concerned with the overhead costs
used by different products.
Answer: C
15) Which of the following can be described as a fiduciary duty of cost assignment?
A) ABC should be implemented to ensure adequate cost control regardless of cost.
B) Department managers should select activity cost drivers that increase their chance for success.
C) Effective delegation requires management to maintain close control over processes that incur costs.
D) Managers must avoid expanding their scope beyond the functions they control.
E) Cost assignment should begin with a limited scope of activities that managers believe are critical to the
success of the company.
Answer: E
14) When calculating the total amount of manufacturing overhead to allocate to a particular job, the
company would multiply each departmental overhead rate by ________ and then ________ together the
allocated amounts from each department.
A) the actual amount of the departmental allocation base used by the job; add
B) the actual amount of the plant-wide allocation base used by the job; add
C) the actual amount of the departmental allocation base used by the job; multiply
D) the actual amount of the plant-wide allocation base used by the job; multiply
E) the actual amount of the activity allocation base used by the job; add
Answer: A
7) Determining what activities add customer value is an example of what facet of activity-based
management?
A) increase effective coordination among business function activities
B) reduce costs of non-value-added activities
C) improve selection of process activities to enhance profit
D) match the company's use of resources to customer demand
E) achieve planned growth
Answer: C
11) Traditional cost systems can be used to
A) reveal activities that can be eliminated.
B) help control nonfinancial items such as number of setup hours.
C) help identify new designs to reduce costs.
D) can be used to enhance budgeting.
E) accurately assign direct costs.
Answer: E
Chapter 6 Master Budget and Responsibility Accounting
11) Planning the performance of the organization, providing a frame of reference, and investigating
variances are part of the
A) budgetary cycle.
B) cash budget.
C) financing budget.
D) master budget.
E) production budget.
Answer: A
12) The master budget embraces the impact of
A) operating and managerial decisions.
B) operating and financing decisions.
C) financing and managerial decisions.
D) operating, managerial, and financing decisions.
E) the differences between the budget and the actual costs, for a given cycle.
Answer: B
14) Budgets are advantageous because they
A) compel planning that includes the implementation of plans, provide performance criteria, and
promote goodwill.
B) provide performance criteria, promote goodwill, and save money.
C) compel planning that includes the implementation of plans, provide performance criteria, and
promote communication and coordination within the organization.
D) compel planning that includes the implementation of plans, require organizing, and ensure
controlling.
E) ensure that the organization meets its goals.
Answer: C
15) Strategic analysis is the
A) comparison of how well an operating budget meets the overall organizational objectives.
B) investigation of external factors that may affect production.
C) evaluation of how well the organization has combined its own capabilities with the relevant features
of the competitive environment.
D) analysis of organizational and financial structures of the company.
E) development of contingency plans.
Answer: C
18) A limitation of comparing a companyʹs performance against actual results of last year is that
A) it includes adjustments for future conditions.
B) feedback is no longer a possibility.
C) the benchmark may be unrealistic.
D) past results can contain inefficiencies of the past year.
E) the budgeting time period is set at one year.
Answer: D
12) A production budget expressed in units is equal to
A) budgeted sales plus beginning finished goods inventory plus targeted ending finished goods
inventory.
B) budgeted sales less beginning finished goods inventory less targeted ending finished goods inventory.
C) budgeted sales less beginning finished goods inventory plus targeted ending finished goods
inventory.
D) budgeted sales plus beginning finished goods inventory less targeted ending finished goods
inventory.
E) last yearʹs sales plus beginning finished goods inventory plus targeted ending finished goods
inventory.
Answer: C
18) Direct material purchases equal
A) usage plus production needs.
B) production needs plus target ending inventories.
C) beginning inventories plus production needs.
D) usage plus target ending inventories less beginning inventories.
E) the number of units to be produced times the amount of direct material in each unit.
Answer: D
44) The operating budget includes the
A) capital budget.
B) cash budget.
C) budgeted balance sheet.
D) budgeted cash flow statement.
E) production budget.
Answer: E
8) The reason for tracing a cost in responsibility accounting is to determine which of the following?
A) whether it is fixed or variable
B) who has the best knowledge about why the costs arose
C) what activity caused the costs to be incurred
D) either who has the best knowledge about why the costs arose or, what activity caused the costs to be
incurred
E) whether it is production or administrative
Answer: D
10) Which of the following statements is true concerning controllability of costs?
A) Fixed costs are controllable costs.
B) Controllable costs are easy to identify with much accuracy.
C) Senior managers rarely differ in their reliance on controllable costs for performance measurement.
D) All costs are controllable, given a sufficiently long time period.
E) Most costs are under the sole influence of any one manager.
Answer: D
12) One of the criticisms of traditional budgeting is not using budgets to evaluate performance until the end of
the budget period. Which of the following proposals for change would address this criticism?
A) Link budgeting explicitly to strategy.
B) Use Kaizen budgeting to guide areas for cost reduction before the end of the budget period.
C) Inform employees of the need for continuous improvement in performance within the budget period.
D) Balance financial aspects with non‐financial aspects (such as quality and time).
E) Rely strictly on extrapolation of past performance.
Answer: C
Chapter 9 Income Effects of Denominator Level on Inventory Valuation
9) The denominator‐level concept based on capacity utilization that satisfies average customer demand
that includes seasonal and cyclical factors is called
A) theoretical capacity.
B) practical capacity.
C) normal capacity.
D) master‐budget capacity.
E) supply capacity.
Answer: C
11) A major reason for choosing ________ utilization over ________, is the difficulty in forecasting.
A) theoretical capacity; master‐budget
B) practical capacity; master‐budget
C) normal capacity utilization; master‐budget
D) master‐budget; theoretical capacity
E) master‐budget; normal capacity utilization
15) ________ provides the lowest estimate of denominator‐level capacity.
A) Practical capacity
B) Theoretical capacity
C) Master‐budget capacity utilization
D) Normal capacity utilization
E) Supply capacity
Answer: C
18) From the perspective of long‐run product costing it is best to use
A) master‐budget capacity utilization to highlight unused capacity.
B) normal capacity utilization for benchmarking purposes.
C) practical capacity for pricing decisions.
D) theoretical capacity for performance evaluation.
E) supply capacity to satisfy customer demand.
Answer: C
10) Using ________ capacity fixes the cost of capacity at the cost of supplying the capacity regardless of
the demand for capacity.
A) practical
B) theoretical
C) supply
D) demand
E) master‐budget
Answer: A
11) ________ utilization is an average that provides no meaningful feedback to the marketing manager for
a particular year.
A) Normal capacity
B) Master‐budget capacity
C) Practical capacity
D) Flexible budget capacity
E) Planned unused capacity
Answer: A
12) The marketing managerʹs performance evaluation is most fair when based on a denominator level
using
A) practical capacity.
B) theoretical capacity.
C) master‐budget capacity.
D) normal capacity.
E) supply capacity.
Answer: C
23) The distinction between absorption costing and variable costing is most important for which type of
industry?
A) manufacturing
B) marketing
C) retail
D) service
E) educational
Answer: A
Diff: 1 Type: MC
Skill: Knowledge
Objective: LO 9‐3
24) When all fixed manufacturing costs and variable manufacturing costs are included as inventorial
costs, the method being used is
A) absorption costing.
B) fixed overhead costing.
C) manufacturing overhead costing.
D) variable costing.
E) direct costing.
Answer: A
25) The method of costing that excludes fixed manufacturing costs from inventorial costs is known as
B) fixed overhead costing.
C) manufacturing overhead costing.
E) full manufacturing costing.
Answer: D
29) Absorption costing is also known as
A) direct costing.
B) full absorption costing.
C) non‐traditional costing.
D) manufacturing costing.
E) variable costing.
Answer: B
37) Which of the following variances exists only under absorption costing?
A) spending variance
B) efficiency variances
C) sales‐volume variance
D) variable overhead flexible budget variance
E) production‐volume variance
40) When large differences exist between practical capacity and master‐budget capacity utilization,
companies can classify part of the large difference as
A) production‐volume variance.
B) sales volume variance.
C) normal capacity utilization.
D) theoretical capacity utilization.
E) planned unused capacity.
Answer: E
46) The costing method that has been labelled as a ʺblack holeʺ because fixed costs are inventoried is
commonly known as
B) direct costing.
C) break‐even point costing.
E) standard costing.
Answer: A
47) When comparing the operating incomes between absorption costing and variable costing, and
beginning finished inventory exceeds ending finished inventory, it may be assumed that
A) sales increased during the period.
B) variable cost per unit is less than fixed cost per unit.
C) absorption costing income exceeds variable costing income.
D) variable costing income exceeds absorption costing income.
E) variable costing income equals absorption costing income.
Answer: D
48) Which of the following is true concerning operating income calculated under variable costing as
compared to absorption costing?
A) Operating income is lower under variable costing when production exceeds sales.
B) Operating income is higher under variable costing when production exceeds sales.
C) Operating income is lower under variable costing when sales exceeds production only if there is a
production‐volume variance.
D) operating income is higher under variable costing when production exceeds sales only if there is a
production‐volume variance.
E) The relationship between production and sales has no bearing on the differences in operating income
between the two methods.
Answer: A
49) A possible criticism of ________ costing is that fixed manufacturing overhead is treated as a/an
________.
A) variable; asset
B) absorption; period cost
C) absorption; asset
D) variable; liability
E) absorption; variable cost in the long run
Answer: C
68) Which of the following is a weakness particular to the absorption costing method?
A) A production manager cannot manipulate operating income.
B) A manager is always encouraged to match the production schedule to estimated demand.
C) A manager may be encouraged to switch production to difficult to manufacture products.
D) A downward demand spiral can be created.
E) A manager may be encouraged to defer maintenance.
Answer: D
10) Which of the following is true concerning throughput costing?
A) It is also called super‐absorption costing.
B) It treats all costs except those related to direct labour as period costs.
C) It provides more incentive to build‐up inventories than does absorption costing.
D) It provides more incentive to build‐up inventories than does variable costing.
E) Other things being equal, is more conservative than absorption costing.
Answer: E
13) One of the biggest reasons variable costing is controversial involves
A) external reporting.
B) corporate goals and mission statements.
C) internal management control reports.
D) internal management reports.
E) foreign subsidiaries.
Answer: A
14) Which of the following combination of costing systems assigns the same direct labour cost to
inventory?
A) variable‐throughput
B) variable‐absorption
C) throughput‐absorption
D) normal‐standard
E) actual‐standard
Answer: B
Chapter 11 Decision Making and Relevant Information
16) Which of the following is false concerning relevant costs and relevant revenues?
A) Every decision deals with the future.
B) Nothing can be done to alter past costs or revenues.
C) Historical costs may be useful for predicting future costs.
D) Historical costs in themselves are irrelevant to a decision on future costs.
E) Total differential costs include both relevant and irrelevant costs.
Answer: E
25) Which of the following costs are never relevant in the decision‐making process?
A) fixed costs
B) historical costs
C) relevant costs
D) variable costs
E) opportunity costs
Answer: B
8) A one‐time‐only special order decision
A) should consider only long‐term costs and benefits.
B) must still consider short‐term and long‐term costs and benefits.
C) allows a company to sell products at prices which only cover fixed costs.
D) should consider only short‐term costs and benefits.
E) should only be undertaken if there is idle capacity.
Answer: B
16) When considering a project that will require production using otherwise idle resources, which of the
following are true?
A) Avoidable fixed costs are irrelevant.
B) Only the variable costs of the project are relevant.
C) Only financial factors should be considered.
D) The project should not be undertaken if total revenue from the project is less than the total costs of
production.
E) In the short run, even if revenue is less than the total costs of production, the project could help the
companyʹs overall operating income.
Answer: E
19) Past costs that are unavoidable and unchangeable are known as
A) fixed overhead costs.
B) operating costs.
C) product production costs.
D) sunk costs.
E) constraining costs.
Answer: D
21) For make‐or‐buy decisions, relevant costs include
A) direct material costs plus direct labour costs.
B) incremental costs plus opportunity costs.
C) differential costs plus sunk costs.
D) incremental costs plus fixed costs.
E) variable costs plus fixed overhead.
Answer: B
22) The opportunity cost of holding significant inventory includes
A) contribution margin on the extra inventory.
B) additional insurance costs.
C) additional storage costs.
D) the cost of the inventory plus the added insurance and storage costs.
E) the interest forgone on an alternative investment.
Answer: E
4) Unit cost data can mislead decisions by including irrelevant costs or by
A) not computing fixed overhead costs.
B) computing labour and materials costs only.
C) computing administrative costs.
D) not computing unit costs at the relevant output level.
E) including qualitative data.
Answer: D
8) Which of the following should management consider to avoid the pitfalls of relevant‐cost analysis?
A) Consider all current revenues and costs.
B) Include any item of revenue or cost that is either an expected future revenue or expected future cost,
and, differs between the alternatives.
C) Historic revenues and costs for items that differ according to alternatives should be considered.
D) Assume that all fixed costs are irrelevant.
E) Assume that all variable costs are relevant.
Answer: B
Chapter 12 Pricing Decisions, Product Profitability Decisions, and Cost
Management
12) For long‐run pricing decisions, using stable prices has the advantage of
A) helping build buyer‐seller relationships.
B) reducing the need to change cost structures frequently.
C) reducing competition.
D) minimizing the need to monitor competitors prices frequently.
E) increasing margins.
Answer: A
13) Target pricing is based on
A) engineered cost.
B) variable manufacturing and nonmanufacturing costs.
C) full product cost.
D) what customers are willing to pay.
E) full manufacturing cost.
Answer: D
3) A price‐bidding decision for a one‐time‐only special order includes an analysis of
A) only marketing costs.
B) all cost drivers.
C) all costs of each function in the value chain.
D) only fixed manufacturing costs.
E) indirect costs of each category in the value chain.
Answer: C
4) Decisions on the price to bid on a one‐time‐only special order should include
A) only cost data.
B) only the potential bids of competitors.
C) existing fixed manufacturing overhead.
D) cost data, and the use of variable costing income statements.
E) cost data and potential bids of competitors.
Answer: E
14) A productʹs markup percentage would need to cover fixed manufacturing costs if
A) the company has only fixed manufacturing costs.
B) the company wants to break‐even during the fiscal period.
C) the company wants to make a profit.
D) the cost base does not include fixed manufacturing costs.
E) the cost base includes fixed manufacturing costs as well as variable costs.
Answer: D
16) When target costing and target pricing are used together,
A) the target cost is established first, then the target price.
B) the target cost per unit is the estimated long‐run price per unit that enables a product or service to
achieve the target profit per unit.
C) the target price is set to undercut the competition.
D) target costs are higher than current costs because of inflation over time.
E) target price is the estimated price for a product or service that a potential customer will be willing to
pay.
Answer: E
17) The target pricing approach is easier when
A) products highly differentiated and the consumer life cycle is shorter.
B) products highly differentiated and the consumer life cycle is longer.
C) products are not well differentiated and the consumer life cycle is shorter.
D) products are not well differentiated and the consumer life cycle is longer.
E) little is known about market factors.
Answer: D
8) When are a productʹs direct materials cost most likely to be locked in?
A) when the product is designed
B) when purchasing commits to buying the materials
C) when the bill for the materials is paid
D) when the materials are used in production
E) when materials are received from the supplier
Answer: A
13) Which of the following is true of alternative long‐run pricing approaches?
A) A market‐based approach only considers how customers will react.
B) A cost‐based approach only considers how customers will react.
C) A market‐based approach only considers costs.
D) A market‐based approach is more logical in a competitive market.
E) In cost‐plus pricing, selling price ignores market forces when setting the markup.
Answer: D
15) Survey evidence suggest that most companies use which type of cost when making pricing decisions?
A) cost‐plus
B) absorption product costing
C) variable product costs
D) variable manufacturing costs
E) manufacturing function costs
Answer: B
14) An airline charges business and pleasure travellers different amounts. This is an example of
A) customer‐preference pricing.
B) high‐load pricing.
C) peak‐load pricing.
D) price discrimination.
E) off‐load pricing.
Answer: C
21) The life‐cycle reporting process
A) is the same as traditional accounting reporting.
B) matches the companyʹs normal fiscal year reporting.
C) usually includes several accounting reporting periods.
D) tracks costs, but not revenues, from the beginning to the end of a productʹs or serviceʹs life.
E) is used only when yearly costs are not definable.
Answer: C
22) Which of the following is TRUE concerning Life cycle budgeting?
A) It obscures revenues in minor business functions.
B) It highlights only costs for the life cycle.
C) It has a calendar year focus.
D) It assumes that selling price is the same over the life cycle of the product.
E) It helps in setting prices to cover costs in all business functions.
Answer: E
23) Which of the following is not a benefit of life cycle reporting?
A) The full set of revenues associated with each product becomes visible.
B) The full set of costs associated with each product becomes visible.
C) The differences between products in the percentage of their total costs incurred at earl stages in the life
cycle are highlighted.
D) Upstream costs, such as R & D, are the only costs that are need to be added in when a life cycle report
is complete.
E) Interrelationships among business function cost categories are highlighted.
Answer: D
24) Which of the following is true of products with a long life cycle?
A) Their costs are more difficult to manage, early in their life cycle.
B) It is not as important to have accurate predictions of revenues.
C) They highlight the interrelationships with other parts of the life cycle.
D) They are highly visible and therefore must be carefully controlled.
E) A smaller fraction of the total life costs are actually incurred at the time when costs are locked‐in.
Answer: E
25) Customer life‐cycle costs
A) are the costs the selling company incurs to satisfy the customer.
B) are the costs to the customer of buying and using a product until it is replaced.
C) are the same as the selling life‐cycle prices.
D) are the replacement costs of using a product or service.
E) focus on marketing costs.
Answer: B
26) Dumping is closely related to predatory pricing and occurs when
A) companies get rid of obsolete inventory at prices below cost.
B) a business drops a large order at a customer location at a lower price if the customer accepts the order.
C) a Canadian company sells its products in another province below the variable cost.
D) a foreign company sells goods in Canada at a price below the market value in the home country.
E) a Canadian or foreign company sells its products below the variable cost.
Answer: D
Chapter 13 Strategy, Balanced Scorecard, and Profitability Analysis
3) ________ has/have been classified in many ways, but what is common is to set the business within its
external environment.
A) Strategies
B) Planning
C) Competitors
D) Bargaining power of input suppliers
E) Cost Leadership
Answer: A
4) Which of the following is not a force that shapes an organization's competitive environment?
A) competitors
B) equivalent products
C) bargaining power of customers
D) government regulation
E) potential entrants into the market
Answer: D
5) Which of the following is a force that shapes an organization's profit potential?
A) Investors
B) Potential entrants into the market
C) Lenders
D) Research and development
E) Bankers
Answer: B
7) ________ is the fundamental rethinking and redesign of business processes to achieve improvements in
critical measures of performance such as cost, quality, service, speed, and customer satisfaction.
A) Strategy
B) Customer perspective
C) Learning and growth perspective
D) Reengineering
E) Product differentiation
Answer: D
8) Successful reengineering involves all of the following EXCEPT
A) cutting across functional lines to focus on the entire business process.
B) redefining the roles and responsibilities of employees.
C) using information technology.
D) entering new geographic markets.
E) improving customer satisfaction.
Answer: D
11) Which of the following is a measure of the customer perspective?
A) return on investment
B) market share in the high-end appliance market
C) development of new products or services
D) production cycle time
E) revenue growth
Answer: B
13) Which of the following is an objective of the learning and growth perspective?
A) increase return on investment
B) increase market share in the high-end appliance market
C) improve order delivery time
D) development of new products or services
E) increase customer satisfaction
Answer: D
18) The purpose of the balanced scorecard is BEST described as helping an organization
A) develop customer relations.
B) mobilize employee skills for continuous improvements in processing capabilities, quality, and
response times.
C) introduce innovative products and services desired by target customers.
D) translate an organization's mission and strategy into a set of performance measures that help to
implement the strategy.
E) develop supplier relations.
Answer: D
20) Measures of the balanced scorecard's customer perspective include all of the following EXCEPT
A) market share.
B) customer satisfaction.
C) number of new customers.
D) customer training on new products.
E) number of repeat customers.
Answer: D
21) Measures of the balanced scorecard's internal-business-process perspective include all of the
following EXCEPT
A) operating capabilities.
B) number of new products.
C) employee turnover rates.
D) defect rates.
E) production cycle time.
Answer: C
22) Which of the following is NOT true of a good balanced scorecard?
A) It tells the story of a company's strategy by articulating a sequence of cause-and-effect relationships.
B) It helps to communicate corporate strategy to all members of the organization.
C) It identifies all measures, whether significant or small, that help to implement strategy.
D) It uses nonfinancial measures to serve as leading indicators of future financial performance.
E) It incorporates both financial and nonfinancial measures.
Answer: C
13) Which of the following best describes the effect of uncertainty?
A) The higher the level of uncertainty about the relationship between resources used and outputs, the less
likely a cause-and-effect relationship will exist.
B) The higher the level of uncertainty about the relationship between resources used and outputs, the
more likely a cause-and-effect relationship will exist.
C) The higher the level of uncertainty about the relationship between resources used and outputs, the
more likely the cost will classified as a discretionary cost.
D) The higher the level of uncertainty about the relationship between resources used and outputs, the less
likely the cost will classified as a discretionary cost.
E) The higher the level of uncertainty about the relationship between resources used and outputs, the less
likely a cause-and-effect relationship will exist, and the more likely the cost will classified as a
discretionary cost.
Answer: E
14) Unused capacity is difficult to determine for
A) engineered costs.
B) discretionary costs.
C) both engineered and discretionary costs.
D) costs with an observable cause and effect relationship.
E) costs that do not deviate from expected amounts.
Answer: B
15) The lower the inputs for a given set of outputs or the higher the outputs for a given set of inputs, the
higher the level of
A) standard costs.
B) sales.
C) productivity.
D) labour costs.
E) labour costs and productivity.
Answer: C
17) ________ measures the relationship between actual inputs used and actual outputs achieved.
A) Total factor productivity
B) Partial productivity
C) Productivity
D) Product yield variance
E) Labour yield
Answer: C
18) The ratio of the quantity of output produced divided by the quantity of a single input used, is called
A) total factor productivity.
B) partial productivity.
C) productivity.
D) product yield variance.
E) productivity variance.
Answer: B
20) Which of the following statements is true concerning productivity?
A) The lower the partial productivity ratio, the greater the productivity.
B) Productivity has increased when the partial productivity is high.
C) Prices of inputs are incorporated in the partial productivity ratio.
D) The partial productivity ratio measures the number of outputs produced per multiple input.
E) The partial productivity ratio measures the amount of a single output produced with multiple inputs.
Answer: B
23) Which of the following statements is true concerning productivity measures?
A) Both the partial productivity and total factor productivity measures have the same weaknesses, but
each has different strengths as a measure.
B) Both the partial productivity and total factor productivity measures have the same strengths, but each
has different weaknesses as a measure.
C) Both the partial productivity and total factor productivity measures have the same strengths, and the
same weaknesses as a measure.
D) The weaknesses of the partial productivity measure are the strengths of the total factor productivity
measure.
E) The strengths and weakness in the measurements of the partial productivity measure are the strengths
of the total factor productivity measures are completely unrelated to each other.
Answer: D
24) Which of the following would result in an increase in total factor productivity, assuming all other
variables are held constant?
A) The quantity of outputs increases.
B) The company uses more total inputs.
C) The company uses lower quality inputs.
D) Current technology becomes obsolete.
E) Quantity of inputs increases and costs of inputs stays the same.
Answer: A
25) Which of the following is a major advantage of total factor productivity?
A) It measures the combined productivity of all inputs.
B) The control operations personnel have over inputs.
C) The control operations personnel have over outputs.
D) The marketing mix determined by management.
E) It is easy for operations personnel to understand.
Answer: A
26) ________ is the ratio of the quantity of output produced to the costs of all inputs used, where the
inputs are combined on the basis of current period prices.
A) Total factor productivity
B) Partial productivity
C) Productivity
D) Product yield variance
E) Manufacturing conversion
Answer: A
27) A disadvantage of total factor productivity over partial productivity is that
A) it focuses attention on a single input.
B) it compares multiple physical inputs with outputs.
C) the input is a fixed amount.
D) operations personnel find financial measures more difficult to understand than physical measures.
E) cause and effect relationships are more easily identified.
Answer: D
28) Which of the following statements about productivity measures is true?
A) They may only be stated in terms of dollars.
B) Total factor productivity explicitly considers gains from using fewer inputs, not from substituting
inputs.
C) Partial productivity measures allow managers to evaluate the effect of input substitutions on overall
productivity.
D) It is important to use the results as a starting point for analysis.
E) The productivity measure may not be made for companies with multiple products.
Answer: D
29) The average number of student credit hours taught per faculty member is an example of
A) an expected performance measure.
B) a budgeted productivity measure.
C) a standard productivity measure.
D) a partial productivity measure.
E) a total factor productivity measure.
Answer: D
Chapter 14 Period Cost Allocation
10) To encourage the design of products that are simpler to manufacture or less costly to service, would
be an example of which cost allocation purpose?
A) to provide information for economic decisions
B) to motivate managers and employees
C) to determine employees' wages
D) to measure income and assets for reporting to external parties
E) to justify costs or compute reimbursements
Answer: B
11) Which of the following illustrates a purpose for allocating costs to cost objects?
B) to reduce competition
C) to determine employee benefit costs
D) to defer income and reduce taxes payable
E) to motivate employees
Answer: A
12) Deciding whether to make a component part or to purchase it, would be an example of which cost
allocation purpose?
B) to motivate managers
C) to determine employee's wages
E) to motivate employees
Answer: A
13) For the economic decision purpose
A) the costs in all six business functions should be included.
B) costs for only one function is included.
C) period costs are not allocated.
D) costing is only related to product pricing.
E) only inventoriable costs under GAAP/IFRS should be included.
Answer: A
14) Which of the following criteria subsidizes poor performers at the expense of the best performers?
A) ability to bear
B) benefit received
C) causality
D) fairness and equity
E) benefits expended
Answer: A
15) The belief that a corporate division with higher sales ought to be allocated more of the company's
advertising costs because it must have derived more benefit from the expenditures than a division with
lower sales, is an example of which criteria for cost allocation decisions?
A) ability to bear
B) benefits expended
C) causality
E) benefit received
Answer: E
16) Which of the following is not a common criteria used to guide decisions related to cost allocations?
A) ability to bear
B) benefit received
C) causality
E) stable market prices
Answer: E
17) Which of the following is the first step in the cost-allocation decision process?
A) Calculate the cost-allocation rate for each indirect cost pool.
B) Identify the purpose of the cost allocation.
C) Identify the direct inputs that are already measured.
D) Identify the relevant indirect costs included in the cost pool(s) or numerator(s).
E) Analyze the alternatives and select the best one for the denominator.
Answer: B
18) Which of the following is true concerning cost allocation in a multi-product company?
A) Where the indirect costs are variable and each product is assembled sequentially, the causality
criterion can guide the choice of a cost allocation base.
B) Where the indirect costs are fixed and each product is assembled sequentially, the causality criterion
can guide the choice of a cost allocation base.
C) Where the indirect costs are variable and each product is not assembled sequentially, the causality
D) Where the indirect costs are fixed and each product is not assembled sequentially, the causality
E) Where the indirect costs are variable and the products are produced jointly, it is not possible to
identify specific cause-and-effect relationships between work on an individual product and total costs
incurred.
Answer: A
19) Which purpose of cost allocation is used to encourage sales representatives to push high-margin
products or services?
B) to motivate managers and other employees
C) to justify costs
E) to compute reimbursement
Answer: B
20) Which purpose of cost allocation is used to decide on the selling price for a customized product or
service?
B) to motivate managers and other employees
C) to justify costs
E) to compute reimbursement
Answer: A
14) A grouping of individual cost items is known as
A) a cost pool.
B) an allocation base.
C) grouped direct costs.
D) grouped indirect costs.
E) a homogenous cost group.
Answer: A
15) An organization determines its allocation base depending upon which of the following factors?
A) the purpose served by the cost allocation base
B) the size of the base
C) the number of different items in the base
D) the performance of the denominator activity
E) benchmarking competitor processes
Answer: A
16) When all of a cost pool's individual activities have the same or similar relationships between the cost
driver and the costs of the activity, it is considered
A) a beneficial cost pool.
B) a heterogeneous cost pool.
C) a homogeneous cost pool.
D) a similar cost pool.
E) an assigned cost pool.
Answer: C
17) Which of the following is FALSE concerning homogeneous cost pools?
A) They enable more accurate product, service and customer costs to be obtained.
B) The cost allocations using the pool will be the same as would be made if each individual activity in the
pool were allocated separately.
C) The greater the degree of homogeneity, the fewer cost pools are required to accurately explain
differences in how products use resources.
D) All activities in the pool have the same or similar cause-and-effect relationship between the cost
allocator and the costs of the activity.
E) All activities in the pool have a unique and different benefits-received relationship between the cost
allocator and the costs of the activity.
Answer: E
18) The method that allocates costs in each cost pool using the same rate per unit is known as the
A) incremental cost allocation method.
B) reciprocal cost allocation method.
C) single-rate cost allocation method.
D) dual-rate cost allocation method.
E) homogeneous cost allocation method.
Answer: C
19) Benefits of the single-rate method include
A) the low cost of implementation.
B) fixed costs that are transformed into variable costs for user decision making.
C) signals regarding how variable and fixed costs behave differently.
D) information that leads to outsourcing decisions that benefit the organization as a whole.
E) there is a stronger cause and effect relationship.
Answer: A
20) Benefits of the dual-rate method include
A) variable costs that are transformed into fixed costs for user decision making.
B) the low cost of implementation.
C) avoidance of expensive analysis for categorizing costs as either fixed or variable.
D) information that leads to outsourcing decisions that benefit the organization as a whole.
E) increased costs of implementation.
Answer: D
21) Under which of the following methods of cost allocation is there no distinction between fixed and
variable costs?
A) fixed method
B) dual-rate method
C) homogeneous method
D) standard cost method
E) single-rate method
Answer: E
22) Which cost allocation method differentiates between variable and fixed costs?
A) dual-rate method
B) heterogeneous method
C) single-rate method
D) variable method
E) fixed rate method
Answer: A
7) When choosing between budgeted usage and actual usage as allocation bases, which of the following is
true?
A) Actual rates let users know in advance what their costs are.
B) When budgeted rates are used, users must wait till the end of the budget period to know what their
costs are.
C) With actual rates, a support department, rather than a user department, bears the risk of unfavourable
cost variances.
D) Budgeted rates may lead to user departments outsourcing needed work, rather than relying on an
internal support department.
E) Budgeted rates may help the manager of a support department to improve efficiency.
Answer: E
8) Fixed costs
A) should be allocated according to past production capacity.
B) should be allocated according to current usage.
C) should be allocated according to short-term expected usage.
D) should be allocated according to long-term expected usage.
E) should be allocated using actual usage as the allocation base.
Answer: D
13) An advantage to using budgeted usage, rather than actual usage, for the allocation base is that
A) GAAP/IFRS requires it for comparability to previous years.
B) variable costs are lower.
C) management does not have to be accountable for actual costs since the system only deals with
budgeted costs.
D) it is consistent with a short-run time horizon.
E) user divisions will know their allocated costs in advance.
Answer: E
14) A disadvantage of allocating fixed costs according to actual usage is that
A) managers may be tempted underestimate usage.
B) the allocation would capture the cause-and-effect relationship.
C) variation in usage will result in variances that need to be managed.
D) changes in one department's usage should not affect another department's allocation.
E) some organizations offer rewards to managers who make accurate forecasts.
Answer: A
15) Which of the following could be described as a department that adds value to a product or service, which is
observable by a customer?
A) a personnel department
B) an assigned department
C) a support department
D) a service department
E) an operating department
Answer: E
16) Which of the following does NOT apply to support departments?
A) A support department is not an operating department.
B) Support departments create special accounting problems when they provide reciprocal support to each
other.
C) An example of a support department would be a personnel department.
D) To obtain accurate product costs requires the inclusion of support department costs.
E) Direct support costs are always traced, indirect support department costs are allocated.
Answer: E
17) To discourage unnecessary use of a support department, management might
A) not allocate any support department costs to user departments.
B) allocate support department costs based upon user department usage.
C) allocate a fixed amount of support department costs to each department regardless of use.
D) issue memos on useful services provided by the support department.
E) allocate only variable costs based on budgeted usage.
Answer: B
7) To discourage excessive use of a support department, management might
A) not allocate any costs of the support departments.
B) allocate costs based on user department usage.
C) allocate a fixed amount to each department regardless of use.
D) expense fixed costs of support departments directly to the income statement.
E) create special accounting records for the support department.
Answer: B
8) Which of the following is the most widely used method of allocating support department costs?
A) linear equation method
B) step-down method
C) hybrid method
D) reciprocal method
E) direct allocation method
Answer: E
14) Which method allocates costs by explicitly including the mutual services rendered among all support
departments?
A) the direct allocation method
B) the interdepartmental method
C) the reciprocal allocation method
D) the step-down method
E) the incremental method
Answer: C
15) Which of the following describes the complete reciprocated cost?
A) It only includes the actual incurred cost of the operations department.
B) It only includes the actual incurred cost of the support department.
C) It is always larger than actual cost.
D) It is always less than actual cost.
E) It is equal to the actual cost of a single service department.
Answer: C
20) Which method allows for partial recognition of the services rendered by support departments to other
support departments?
A) the direct allocation method
B) the interdepartmental method
C) the reciprocal allocation method
D) the step-down method
E) the step-down allocation method
Answer: E
21) Which of the following is a valid conclusion, in comparing the three allocation methods?
A) The reciprocal method is conceptually inferior.
B) The direct method is viewed as too complex by most organizations.
C) The step-down method is viewed as too complex by most organizations.
D) Many managers find the step-down method too simple.
E) Many managers find the reciprocal method difficult to understand.
Answer: E
22) The step-down allocation method:
A) typically begins with the support department that provides the highest percentage of its total services
to other support departments
B) recognizes the total amount of services that support departments provide to each other
C) allocates complete reciprocated costs
D) offers key input for outsourcing decisions
E) allocates support department costs to production departments only
Answer: A
7) Which of the following departments is least likely to be a support department for a boat manufacturing
company?
A) personnel
B) moulding and assembly
C) data processing
D) accounting
E) purchasing
Answer: B
8) Which of the following terms describes a cost of operating a facility, operation, activity area, or like cost
object that is shared by two or more users?
A) common cost
B) direct cost
C) fixed cost
D) varying cost
E) sunk cost
Answer: A
13) Under the stand-alone method of allocating common costs
A) a ranking is used to allocate costs among the users.
B) disputes can arise over who is the primary user.
C) each party bears a proportionate share of the total costs in relation to their individual stand-alone
costs.
D) an incentive is created to be the first-ranked user.
E) the parties are interested in being viewed as primary users.
Answer: C
14) Under the incremental method of allocating common costs
A) the parties are interested in being viewed as primary users.
B) each party bears a proportionate share of the total costs in relation to their individual stand-alone
costs.
C) fairness and equity are emphasized.
D) there is a disincentive to be titled the primary user.
E) no ranking of users is required.
Answer: D
Chapter 15 Cost Allocation: Joint Products and Byproducts
11) What type of cost is the result of an event that results in multiple products simultaneously?
A) byproduct cost
B) joint cost
C) main cost
D) separable cost
E) split off cost
Answer: B
12) Costs which are assignable beyond the split off point at which individual products emerge are called
A) byproduct cost.
B) joint cost.
C) main cost.
D) separable cost.
E) split off costs.
Answer: D
13) When a single manufacturing process yields two products, one of which has a relatively high sales
value compared to the other, the two products are respectively known as
A) joint products and byproducts.
B) joint products and scrap.
C) main products and byproducts.
D) main products and joint products.
E) byproducts and scrap.
Answer: C
14) Byproducts and scrap are differentiated by
A) number of units per processing period.
B) weight or volume of outputs per period.
C) management preference only.
D) the amount of sales value per unit.
E) the amount of costs assigned to each unit.
Answer: E
15) Which of the following is FALSE concerning manufacturing of joint products and joint costing?
A) The number of outputs produced may exceed the number of products.
B) An output from the process may be recycled without any value being added by its production.
C) Some outputs from a joint process have no value and are not recognized in the accounting system.
D) The physical quantity of outputs not recognized in the accounting system, can exceed the quantities of
outputs that recognized in the accounting system.
E) Joint processes always yield either scrap or byproducts.
Answer: E
16) All of the following changes may indicate a change in product classification of a manufacturing
process which has a split off point EXCEPT
A) scrap items increase in sales value.
B) a main product becomes a joint product.
C) a main product becomes technologically obsolete.
D) a byproduct loses its market due to a new invention.
E) a byproduct increases in market value.
Answer: B
17) Products with a zero sales value are known as
A) scrap.
B) main products.
C) joint products.
D) byproducts.
E) separable products.
Answer: A
18) Which of the following statements is true regarding main products, byproducts, and scrap?
A) Product classifications do not change over the short-run.
B) Product classifications do not change over the long-run.
C) Product classifications may change over time.
D) The cause-and-effect criterion determines the classification.
E) The distinctions between main products, byproducts, and scrap are well-established in practice.
Answer: C
19) Which of the following is NOT a reason to allocate joint cost?
A) rate regulation requirements, if applicable
B) cost of goods sold computations
C) insurance settlement cost information requirements
D) customer profitability analysis
E) cause-and-effect analysis
Answer: E
20) Assigning joint costs when only a portion of a business's products are sold to a single customer is an
example of which of the following?
A) inventory costing for external financial statements
B) customer profitability analysis
C) rate regulation requirements
D) price regulation
E) cost reimbursement
Answer: E
21) A business which enters into a contract to purchase a product (or products) and will compensate the
manufacturer under a cost reimbursement formula, should take an active part in the determination of
how joint costs are allocated because
A) the manufacturer will attempt to allocate as large a portion of its costs to these products.
B) if the manufacturer successfully allocates a large portion of its costs to these products then it will be
able to sell its other nonreimbursed products at lower prices.
C) the CICA requires the business to participate in the cost allocation process.
D) Both A and B are correct.
E) Both A and C are correct.
Answer: D
22) Proper joint cost allocations for inventory costing and cost-of-goods-sold computations are important
because
A) inventory costing is essential for proper balance sheet presentation.
B) divisional profitability may affect compensation for divisional managers.
C) cost of goods sold is an important component in the determination of net income.
D) the information may be required for insurance settlement or litigation.
E) All of the above are correct.
Answer: E
9) All of the following methods may be used to allocate joint costs EXCEPT
A) the constant gross-margin percentage NRV method.
B) the estimated net realizable value method.
C) the present-value allocation method.
D) the sales value at split off method.
E) the physical measure method.
Answer: C
Diff: 2 Type: MC
10) Which of the following is NOT a strategy for costing inventory when joint-cost circumstances are
involved?
A) Allocate costs according to the market selling-price.
B) Allocate costs based on constant gross margin.
C) Allocate costs according to a predetermined physical measure.
D) Use the estimated net realizable value.
E) Aallocate costs according to the amount in the respective cost pools.
Answer: E
11) Which of the following statements is true in regard to the cause-and-effect relationship between
allocated joint costs and individual products?
A) A high individual product value results in a high level of joint costs.
B) A low individual product value results in a low level of joint costs.
C) A high individual product value results in a low level of joint costs.
D) The cause-and-effect relationship depends on the relative costs to be incurred after split off.
E) There is no cause-and-effect relationship.
Answer: E
20) Which method allocates joint costs on the basis of each product's relative sales value at the split off
point?
A) the constant gross-margin percentage NRV method
B) the estimated net realizable value method
C) the physical measure method
D) the sales value at split off method
E) the split off method
Answer: D
24) What method is used when joint costs are allocated according to each item's relative proportion of
weight at the split off point?
A) direct proportion method
B) proportional value method
C) physical measure method
D) weighted sales value method
E) constant margin method
Answer: C
25) An advantage of the sales value at split off method is
A) the fact that it can be supported subjectively.
B) the fact that only a few assumptions are required beyond the split off point.
C) the fact that there may not be a ready market at the split off point.
D) it always yields the same results as the gross margin percentage method.
E) the cost allocation base is well understood.
Answer: E
27) If joint products end up with the same gross margin percentage, which of the following is true?
A) The cost allocation method assigned the same cost per unit to each product.
B) The physical measure method must have been used.
C) The gross margin percentage NRV method must have been used.
D) The estimated net-realizable method must have been used.
E) If all products are sold at the split off point, and there were no opening inventories, the sales value at
split off method could have been used.
Answer: E
28) Which of the following is FALSE concerning the physical measure method?
A) Technical personnel outside of accounting may be required in the joint costing determinations.
B) Using the benefits-received criterion, the physical measure method less preferred than the sales at split
off method.
C) The physical measure may not reflect each individual product's ability to generate revenues.
D) Using a common physical measure can result in the product with the lowest revenue-producing
power having the most costs assigned to it.
E) It results in a constant gross margin for all products.
Answer: E
31) In rate regulation settings, which method is usually preferred over the sales value method?
A) constant gross-margin percentage NRV method
B) estimated net-realizable method
D) sales value at split off method
E) rate regulation method
Answer: C
32) Advantages of the sales value at split off method include all of the following EXCEPT
A) it does not presuppose an exact number of subsequent steps for further processing.
B) it uses a meaningful denominator.
C) there is no anticipation of subsequent management decisions.
D) it is simple.
E) the allocation of joint costs could lead managers to make poor decisions.
Answer: E
10) The decision of whether to process products beyond the split off process should be based on which of
the following?
A) revenue analysis
B) relevant cost analysis
C) production cost analysis
D) gross margin analysis
E) incremental operating income attainable beyond the split off point
Answer: E
method allocates joint costs on the basis of
A) expected final sales value less separable costs of production and marketing.
B) value added after the split off point.
C) sales value less value added after the split off point.
D) revenue less all direct manufacturing costs after split off point.
E) relative numbers of physical units of each product.
Answer: A
15) Which of the following methods allocates joint costs according to the appraised final sales value in the
ordinary course of business less the appraised separable costs of production and marketing?
A) constant gross-margin percentage NRV method
B) estimated net-realizable method
D) sales value at split off method
E) split off appraisal method
Answer: B
16) Which of the following methods calculates expected profits before any costs are allocated?
A) sales value at split off method
B) physical measure method
C) expected profits method
D) estimated net-realizable method
E) constant gross margin percentage NRV method
Answer: E
17) All of the following statements about the constant gross margin percentage net-realizable method are
true EXCEPT
A) all products have equal gross margin percentages.
B) it is based on a tenuous underlying assumption.
C) the gross margin percentage remains the same regardless of the different amounts of separable costs.
D) the gross margin is calculated by deducting all separable costs from revenue.
E) some products may receive negative allocations of joint costs.
Answer: D
18) Which of the following statements is true concerning the practice of carrying inventories at NRV?
A) It is an inevitable result of joint cost allocation.
B) It results for the NRV method of joint cost allocation.
C) It results from the constant gross margin NRV method.
D) It is a widely-accepted practice.
E) It results in income recognition before sales are made.
Answer: E
24) The constant gross-margin percentage NRV method of joint cost allocation
A) involves allocating costs in such a way that maintaining the same gross margin percentage for each
product that was obtained in prior years.
B) involves allocating costs in such a way that the overall gross margin percentage is identical for the
individual products.
C) is the same as the estimated NRV method.
D) is the same as the sales-value at splitoff method.
E) will result in different gross margins for each product.
Answer: B
Diff: 2 Type: MC
Skill: Knowledge
Objective: LO 15-3
25) Which method of allocating costs would be used if the selling prices of all products at the splitoff
point are unavailable?
A) sales value at splitoff method
B) NRV method
C) physical measures method
D) constant gross-margin percentage method
E) reciprocal method
Answer: B
26) What is the reason that accountants do not like to carry inventory at net realizable value?
A) NRV is the most difficult costing method.
B) NRV recognizes income after the sale is complete.
C) NRV recognizes income before sales are made.
D) NRV is acceptable to the taxing authorities.
E) NRV is normally known.
Answer: C
27) When a product is the result of a joint process, the decision to process the product past the splitoff
point further should be influenced by the
A) total amount of the joint costs.
B) portion of the joint costs allocated to the individual products.
C) extra revenue earned past the splitoff point.
D) extra operating income earned past the splitoff point.
E) joint costs allocated under the NRV method.
Answer: D
2) If managers make processing or selling decisions using incremental revenue / incremental cost
approach, which of the following statements is true?
A) The resulting budgeted product-line income statement under the sales value at split off method, will
show each product to have a positive operating income.
B) The resulting budgeted product-line income statement under the physical measure method, will show
each product to have a positive operating income.
C) The resulting budgeted product-line income statement under the constant gross margin NRV method,
will show each product to have a positive (or zero) operating income.
D) Estimated net-realizable method the resulting budgeted product-line income statement under the
estimated NRV method, will show each product to have a zero operating income.
E) The resulting budgeted product-line income statement under the sales value at split off method, will
show each product to have a negative operating income.
Answer: C
3) The selection of a joint cost allocation method assists managers in which of the following decisions?
A) pricing
B) total cost minimization
C) joint costs minimization
D) adding or dropping a product line
E) sell or process further
Answer: A
12) Which statement is NOT true regarding the sales method of accounting for byproducts.
A) The method makes no journal entries until the byproduct is sold.
B) This method is the preferred method because of the matching principle.
C) Revenues of the byproduct can be recorded in the income statement as revenue.
D) Revenues of the byproduct can be recorded as a reduction of cost of goods sold in the income
statement.
E) No value is attached to the byproduct inventory.
Answer: B
Chapter 16 Revenue and Customer Profitability Analysis
14) ________ is a package of two or more products or services, sold for a single price, where the
individual components of the package may also be sold as separate items, each with their own standalone
price.
A) A revenue product
B) A byproduct
C) A bundled product
D) A joint product
E) A product package
Answer: C
15) ________ occurs where revenues, related but not traceable to individual products (service, customer,
and so on), are assigned to those individual products.
A) Revenue tracing
B) Revenue allocation
C) A bundled product
D) Joint product costing
E) Revenue shedding
Answer: B
16) Which of the following statements is true?
A) Joint product allocation results in more accurate assignment of revenues to products than does
revenue allocation.
B) Revenue allocation results in more accurate assignment of revenues to products than does revenue
tracing.
C) Revenue tracing results in more accurate assignment of revenues to products than does revenue
allocation.
D) Revenue allocation results in more accurate assignment of revenues to products than does joint
product allocation.
E) Joint product allocation results in more accurate assignment of revenues to products than does
revenue tracing.
Answer: C
A) The two main classes of revenue allocation methods are the step-up method and the incremental
method.
B) The stand-alone revenue allocation method ranks the individual products in a bundle and then uses
this ranking to allocate the bundled revenues to these individual products.
C) A bundled product is a package of two or more products or services, sold for multiple prices.
D) The issues discussed with revenue tracing and sales returns do not apply to cost tracing.
E) The two main classes of revenue allocation methods are the stand-alone method and the incremental
method.
Answer: E
18) ________ uses product-specific information pertaining to products in the bundle to determine the
weights used to allocate the bundled revenues to those individual products.
A) The stand-alone revenue allocation method
B) The averaging approach
C) The incremental revenue-allocation method
D) The joint production costing method
E) The weighted averaging approach
Answer: A
19) ________ ranks the individual products in a bundle and then uses this ranking to allocate the bundled
revenues to these individual products.
A) The stand-alone revenue allocation method
B) The averaging approach
C) The incremental revenue-allocation method
D) The joint production costing method
E) The weighted averaging approach
Answer: C
24) To give more weight to the product that most likely drives the sales of the bundled product, the
revenue allocation should be weighted using
A) selling prices.
B) unit costs.
C) physical units.
D) stand-alone product revenues.
E) total product costs.
Answer: D
9) Costs incurred to process orders would MOST likely be classified as a
A) customer output unit-level cost.
B) customer batch-level cost.
C) customer-sustaining cost.
D) corporate-sustaining cost.
E) distribution-channel cost.
Answer: B
10) Top management and general administration costs would MOST likely be classified as a
Answer: D
11) The cost of visiting customers would MOST likely be classified as a
Answer: C
12) Costs incurred to handle each unit sold would MOST likely be classified as a
Answer: A
13) The cost of the manager of a retail distribution channel would MOST likely be classified as a
A) customer-sustaining cost.
B) distribution-channel cost.
C) customer batch-level cost.
E) customer output unit-level cost.
Answer: B
14) Which item is NOT a category in the customer cost hierarchy?
A) customer output unit-level costs
B) customer batch-level costs
C) distribution-channel costs
D) corporate-sustaining costs
E) product-sustaining cost
Answer: E
Diff: 1 Type: MC
15) ________ categorizes costs related to customers into different cost pools on the basis of either different
classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or
benefitsreceived)
relationships.
A) Customer-profitability analysis
B) Customer revenues
C) Customer cost hierarchy
D) Price discounting
E) Zero sum game
Answer: C
16) 24-hour customer service not traceable to an individual customer is an example of what type of cost?
A) corporate sustaining costs
B) distribution channel costs
C) customer sustaining costs
D) customer specific costs
E) warranty costs
Answer: C
17) The president's salary, interest on corporate debt and corporate donations are all examples of what
type of costs?
A) customer support costs
B) corporate sustaining costs
C) customer specific costs
D) distribution channel costs
E) sales costs
Answer: B
18) Which of the following is one of the items that are important to managers when analyzing
salesvolume
variance information?
A) the static-budget variance
B) the flexible-budget variance
C) direct materials price variance
D) the sales-mix variance
E) direct labour efficiency variance
Answer: D
19) Which of the following is not a sales related variance?
A) sales volume variance
B) sales quantity variance
C) market size variance
D) direct materials yield variance
E) market share variance
Answer: D
20) The sales-volume variance plus or minus the static budget amount results in
A) the fixed-budget amount.
B) the flexible-budget amount.
C) an unfavourable/favourable variance.
D) the variable-budget amount.
E) a static budget variance.
Answer: B
29) Fresh Bread Company sells a special mix of wheat bread. If the expected output equals the actual
output, the sales-volume variance
A) will be negative.
B) will be positive.
C) will be favourable.
D) will be unfavourable.
E) will be zero.
Answer: E
30) The difference between (the budgeted contribution margin for the budgeted sales mix and budgeted
volume) and (the budgeted contribution margin for the budgeted sales mix and the actual volume) is the
A) sales mix variance.
B) sales quantity variance.
C) sales-volume variance.
D) market size variance.
E) market share variance.
Answer: B
31) The sales-volume variance for revenue is the
A) (actual sales quantity in units divided by budgeted individual product selling price per unit) times
(budgeted sales quantity in units).
B) (budgeted contribution margin per unit) times (actual unit sales plus static budget unit sales).
C) (actual sales quantity in units plus budgeted sales quantity in units) divided by (budgeted individual
product selling price per unit).
D) (budgeted sales quantity in units divided by budgeted individual selling price per unit) times (actual
sales quantity in units).
E) (budgeted individual product selling price per unit) times (actual sales quantity in units less budgeted
sales quantity in units).
Answer: E
33) The sales-quantity variance arises because
A) the mix of individual products actually sold differs from the budgeted mix.
B) the total quantity of units actually sold differs from the static budget.
C) the total quantity of units expected to be sold differs from the static budget.
D) the mix of budgeted products sold differs from the actual product mix.
E) the budgeted sales in units cannot be achieved unless the price is decreased
Answer: B
34) Which of the following actually calculates the sales-quantity variance?
A) (actual units of all products sold) times (actual sales mix percentage minus budgeted sales mix
percentage) times (budgeted contribution margin per unit)
B) (actual sales quantity in units minus static-budget sales quantity in units) times (budgeted contribution
margin per unit)
C) (actual units of all products sold minus budgeted units of all products sold) times (budgeted sales-mix
percentage) times (budgeted contribution margin per unit)
D) (actual units of all products sold minus budgeted units of all products sold) times (budgeted sales-mix
percentage) times (actual contribution margin per unit)
E) (actual units of all products sold) times (actual sales mix percentage minus budgeted sales mix
percentage) times (actual contribution margin per unit)
Answer: C
39) When the actual mix of products sold shifts in favour of the high-contribution-margin product,
A) the total sales-mix variance is unfavourable.
B) the total sales-mix variance is favourable.
C) the total sales-volume variance is unfavourable.
D) the total sales-volume variance is favourable.
E) the total sales volume is more favourable (or less unfavourable).
Answer: B
Diff: 2 Type: MC
41) The (the difference between the actual market size in units and the budgeted market size in units)
times (the budgeted market share) times (budgeted contribution margin per composite unit for the
budgeted mix) is called the
A) budgeted market-size variance.
B) budgeted market-share variance.
C) market-share variance.
D) market-size variance.
E) sales quantity variance.
Answer: D
48) Which of the following is the best reason(s) for a company to give a price discount to customer?
A) gave discount in the past
B) increase sales person bonus
C) name recognition of the customer and volume purchases
D) to enable cost tracing to a specific customer
E) to enable cost tracing to a specific product
Answer: C
3) ________ examine(s) how customers differ in their profitability.
A) Customer-profitability analysis
B) Customer revenue analysis
C) Customer-cost hierarchy
D) Price discounting
E) Customer-price hierarchy
Answer: A
4) Customer specific costs are costs that
A) are traceable to or allocated to individual customers.
B) are not traceable to individual customers.
C) are the same as customer support costs.
D) would not include cost of goods sold.
E) would not include selling-related costs.
Answer: A
A) Managers often find the bar chart presentation to be the most accurate way to analyze customer
profitability.
B) Managers find customer-profitability analysis useful because it frequently highlights how vital a small
set of customers is to total profitability.
C) Managers find customer-profitability analysis useful because when a customer is ranked in the loss
category, they can focus their resources on this type of customer.
D) The 80/20 rule means that 80% of the customers provide 80% of the profit and 20% of the customers
provide the remainder.
E) Managers can ensure that low profitability customers receive high priority.
Answer: B
7) Which of the following is NOT a factor that managers should consider in deciding how to allocate
resources across customers?
A) short-run and long-run customer profitability
B) customer retention likelihood
C) economic forecasts
D) customer growth potential
E) increases in overall demand from having well-known customers
Answer: C
Chapter 17 Process Costing
9) Costing systems that are used for costing like or similar units of products in mass production are called
A) inventory-costing systems.
B) job-costing systems.
C) process-costing systems.
D) weighted-average costing systems.
E) bulk costing systems.
Answer: C
10) Which of the following manufactured products should use process costing?
A) 767 jet aircraft
B) bags of cement
C) custom build houses
D) designer original evening gowns
E) expensive jewelry
Answer: B
11) Which of the following is FALSE concerning equivalent units?
A) Equivalent units are calculated separately for each cost category.
B) Equivalent units are equal to physical units.
C) Equivalent units measure output in terms of the physical quantities of the inputs consumed.
D) Equivalent units are necessary when process costing is used.
E) The number of equivalent units may be identical for direct materials and for conversion costs.
Answer: B
15) Which of the following is FALSE concerning process costing?
A) Process costing can only be used in manufacturing.
B) Process costing is used when outputs are homogeneous.
C) In process costing, labour and overhead costs are often combined and classified as conversion costs.
D) In process costing, some units will be incomplete at the end of the period.
E) Process costing averages unit costs of production.
Answer: A
5) A key feature in process costing is that
A) total costs are divided by total equivalent units.
B) total units are multiplied by total costs.
C) (total costs times percentage allocated to each unit) are divided by total units.
D) (total units multiplied by the percentage allocated to each unit) is multiplied by total costs.
E) total units are multiplied by individual costs.
Answer: A
8) Which of the following is an assumption implicit in process-costing?
A) All completed units receive more direct material inputs than units in process.
B) All completed units receive less direct material inputs than units in process.
C) Opening inventory is always nil, for the cost calculations.
D) Ending inventory is always nil, for the cost calculations.
E) All completed units receive the same amount of direct material inputs and the same amount of
conversion costs.
Answer: E
9) Which of the following assertions is true concerning conversion costs?
A) Direct labour costs are always included in conversion costs.
B) The conversion period (for conversion costs calculation) can only include one operation.
C) When conversion costs are estimated to be over 80% complete, then the cost-benefit constraint requires
us to use 100% as the estimate.
D) Conversion costs are impossible to estimate with any reliability.
E) The conversion period often includes several operations, and it may be impossible to estimate
conversion costs with any reliability in some cases.
Answer: E
10) Which of the following is NOT one of the procedures in process costing?
A) summarize the flow of physical units of output
B) assign costs to equivalent units based on their percentage of completion
C) compute equivalent unit costs
D) summarize total costs to account for
E) assign costs to completed units
Answer: B
12) The final of the accounting for processes with respect to process costing is to
A) compute the amount of debits to work-in-process.
B) compute the amount of credits to work-in-process.
C) compute the equivalent units for the period.
D) account for all units placed in process during the period.
E) account for all units in ending inventory at the end of the period.
Answer: B
18) Process-costing systems separate costs into cost categories according to which factor(s)?
A) physical units
B) indirect labour
C) fixed and variable costs
D) standard costs
E) direct materials, conversion costs, and in some cases, transferred-in costs
Answer: E
19) Which one of the following methods focuses on the total costs and total equivalent units completed to
date?
A) equivalent-units method
B) first-in, first-out method
C) standard-costs method
D) weighted-average method
E) last-in, last-out method
Answer: D
20) When using the weighted-average method, work completed in beginning work-in-process and work
done during the current period are included in the
A) equivalent units.
B) process units.
C) qualitative units.
D) standard units.
E) normal units.
Answer: A
8) Select the true statement regarding process costing.
A) The degree of completion for conversion costs in ending work-in-process depends on the amount of
direct materials used during the period.
B) Because it tracks beginning inventory's actual costs of completion, the weighted-average method is the
most accurate process costing system.
C) Estimating the degree of completion is usually easier for conversion costs than for transferred-in costs.
D) Estimating the degree of completion is usually easier for direct materials than for conversion costs.
E) The accuracy of the completion percentages depends on the accounting system used.
Answer: D
9) The first-in, first-out method computes unit costs by
A) dividing total units by units completed this period.
B) confining equivalent units to the work completed during the current period only.
C) the standard-costing method.
D) separately identifying the conversion costs of beginning and ending inventories.
E) adding opening inventory units to work-in-process units and dividing by total cost.
Answer: B
12) Which of the following items is not a component of "total costs to be accounted for in a given
department's operations?"
A) direct manufacturing labour used in the given department
B) the cost of materials requisitioned and used by the given department
C) transferred-in costs from the prior processing department
D) transferred-out costs to the next department
E) conversion costs
Answer: D
17) Unit costs of the weighted-average and FIFO methods will differ significantly when
A) direct materials or conversion costs per unit vary little from period to period.
B) physical inventory levels of work-in-process are small in relation to the number of units transferred
out.
C) direct materials or conversion cost per unit vary greatly and physical inventory levels of work-
inprocess
are large relative to the number of units transferred out.
D) conversion costs per unit vary greatly and physical inventory levels of work-in-process are small
relative to the number of units transferred out.
E) direct materials or conversion costs per unit are similar and physical inventory of work-in-process are
small relative to the number of units transferred in.
Answer: C
23) Using standard costs simplifies the calculations for which of the following in process-costing?
A) direct materials
B) conversion costs
C) equivalent units
D) direct materials and conversion costs but standard costs not relevant for equivalent units
E) direct materials and conversion costs and equivalent units
Answer: C
24) Which costing system is well-suited for companies which have infrequent changes in their basic
products?
A) equivalent-average unit costing method
B) first-in, first-out method
C) standard costing
D) weighted-average costing
E) last in first out costing
Answer: C
7) Transferred-in costs incurred in a previous department and charged to a subsequent department
A) are combined with direct materials costs of the subsequent department for a total direct materials costs
figure.
B) are always from the previous period.
C) become part of Cost of Goods Sold in the current period.
D) are always assigned using the FIFO method.
E) follow the physical movement of the units.
Answer: E
8) Regardless of whether previous departments used the weighted-average or the FIFO method, all
transferred-in costs during a given period are carried at
A) the cost at which it was transferred in.
B) the previous period's costs.
C) multiple unit-cost figures.
D) the final cost.
E) one average unit-cost.
Answer: E
9) Which of the following is an error when accounting for transferred-in costs?
A) including transferred-in costs from previous departments
B) costing units at average costs
C) converting units to a common measurement when transferred in
D) consider costs assigned at the beginning of the period when calculating costs to be transferred on a
weighted average basis
E) consider costs assigned at the beginning of the period when calculating costs to be transferred on a
FIFO basis
Answer: D
10) Which of the following is FALSE concerning an operations-costing system?
A) It has characteristics of a job-costing system and of a process-costing system.
B) Within each operation, all product-units are treated exactly alike with respect to conversion costs.
C) Direct materials that are unique to different work orders, are specifically identified with the
appropriate work order, as in job-costing.
D) Work orders are used to specify direct materials and step-by-step operations.
E) A separate conversion cost is calculated for each work order, as in job costing.
Answer: E
11) Conceptually transferred-in costs from another department are similar to
A) direct labour.
B) finished goods inventory.
C) direct labour and materials.
D) manufacturing overhead.
E) materials provided by external suppliers.
Answer: E
12) An operation costing system would be applicable to
A) batches of similar products where each batch is a variation of a single design.
B) the construction of a bridge.
C) a suit-making operation.
D) Both A and C are correct..
E) Both A and B are correct.
Answer: D
13) Managers find operation costing useful in cost management because it
A) often results in profit maximization.
B) results in cost minimization.
C) captures the financial impact of the control of physical processes.
D) overstates production costs.
E) understates operating income.
Answer: C
Chapter 18 Spoilage, Rework, and Scrap
11) Deducting the disposal value from the costs of the spoiled goods accumulated to the point of
inspection equals
A) the net cost of discarded goods.
B) the net cost of reworked goods.
C) the net cost of spoilage.
D) the net cost of scrap.
E) the net cost of disposals.
Answer: C
12) Costs of spoilage include all of the following EXCEPT
A) the opportunity cost of the plant and workers.
B) storage.
C) lost contribution margin.
D) the contribution margin gained on rework.
E) all costs incurred to make the spoiled product to date.
Answer: D
13) If the inspection point occurs at 33% into the production cycle, which of the following units would be
allocated costs of spoilage detected at inspection?
A) all units in the system
B) units that are under 33% complete
C) units detected to be spoiled units
D) units that are more than 33% complete
E) units that are under 33% complete, and units detected to be spoiled units
Answer: B
14) Units of production that can be reprocessed and then be sold as finished goods are best known as
A) reworked units.
B) scrap.
C) normal spoilage.
D) work-in-process.
E) abnormal spoilage.
Answer: A
15) Items with minimal sales value are known as
A) reworked units.
B) scrap.
C) spoilage.
D) ending work in process units.
E) abnormal spoilage.
Answer: B
16) The costs from Abnormal Spoilage should appear
A) on the balance sheet as part of finished goods inventory.
B) as a separate inventory item.
C) as a detailed item on the income statement.
D) as part of cost of goods manufactured.
E) either on the balance sheet as part of finished goods inventory, or as a separate inventory item.
Answer: C
17) Companies that attempt to achieve zero defects in the manufacturing process treat all spoilage as
which of the following?
A) scrap
B) reworked units
C) normal spoilage
D) abnormal spoilage
E) production costs added to inventory
Answer: D
18) Normal spoilage rates for a manufacturing process should be computed on the basis of
A) total good units.
B) total actual units.
C) total reworked units.
D) total production units.
E) total actual units minus total reworked units.
Answer: A
19) Spoilage that should not arise under efficient operating conditions is referred to as
A) ordinary spoilage.
B) normal spoilage.
C) abnormal spoilage.
D) uncontrollable
E) standard spoilage
Answer: C
20) Costs of normal spoilage are usually accounted for as
A) part of the cost of goods sold.
B) part of the cost of goods manufactured.
C) a separate line item in the income statement.
D) an asset in the balance sheet.
E) a liability in the balance sheet
Answer: B
21) Material left over when making a product is referred to as
A) reworked units.
B) spoilage.
C) scrap.
D) defective units.
E) indirect material.
Answer: C
26) Spoilage costs allocated to completed units are larger by which method and by how much?
A) when spoiled units are recognized by $2,500
B) when spoiled units are recognized by $4,250
C) when spoiled units are ignored by $4,250
D) when spoiled units are ignored by $7,500
E) when spoiled units are recognized by $7,500
Answer: E
Explanation: E) $120,000 - $112,500 = $7,500 or $5.00 × 1,500 units = $7,500
5) If normal spoilage is presumed to occur prior to a specific inspection point, and abnormal spoilage is
detected at other inspection points,
A) unit costs of abnormal spoilage will differ from the unit cost of normal spoilage.
B) all spoilage will be recognized proportionately across the various inspection points.
C) abnormal spoilage will generally be less than normal spoilage.
D) normal spoilage costs may be allocated prior to inspection of the products and abnormal spoilage will
be allocated after the inspection of the products.
E) unit cost of abnormal spoilage will be the same as unit costs of normal spoilage.
Answer: A
6) Normal spoilage is usually computed on the basis of
A) the number of good units that pass inspection during the current period.
B) the number of units that pass the inspection point during the current period.
C) the number of units that are 100% complete as to materials.
D) the number of spoiled units that pass inspection during the current period.
E) the percentage of good units that passed inspection in the previous period.
Answer: A
7) Which of the following statements is FALSE?
A) The cost of spoiled units is the costs incurred prior to detection.
B) The unit costs of abnormal and normal spoilage are the same if detected simultaneously.
C) the timing of inspection affects the amount of abnormal spoilage.
D) Spoilage may occur at points other than the inspection point.
E) Spoilage units cannot be sold.
Answer: E
11) Total cost per equivalent unit using the weighted-average method equals
A) the cost per equivalent unit of direct materials plus cost per spoiled unit.
B) the cost per equivalent unit of conversion costs plus cost per unit of spoiled materials.
C) the total costs divided by total equivalent units.
D) the cost per equivalent unit of direct materials plus the cost per equivalent unit of conversion costs.
E) the cost per equivalent unit of indirect materials plus cost per spoiled unit.
Answer: D
12) The goal of separately identifying abnormal spoilage is to
A) properly cost units in the system.
B) assist in performance measurement.
C) ensure that such units do not reach finished goods inventory.
D) reduce abnormal spoilage to an acceptable level.
E) reduce abnormal spoilage to nil.
Answer: B
13) Under the FIFO method, all spoilage costs are assumed to be
A) related to the units in beginning inventory, plus the units completed during the period.
B) related to the units completed during the period.
C) related to the units in ending inventory.
D) related to the units in both beginning and ending inventory plus the units completed during the
period.
E) related to the units completed in both beginning and ending inventory.
Answer: B
18.3 Apply the standard-costing method to account for spoilage, and allocate costs of
normal spoilage.
4) Which of the following can be used in accounting for spoilage?
A) standard costs
B) FIFO
C) Weighted average
D) FIFO and weighted average but not standard costs
E) FIFO and weighted average and standard costs
Answer: E
5) The standard-costing method
A) adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment.
B) makes calculating equivalent-unit costs unnecessary.
C) requires an analysis of the spoilage costs in beginning inventory.
D) requires an analysis of the spoilage costs in ending inventory.
E) requires a calculation of the cost allocation rate.
Answer: B
5) Costs incurred due to spoilage in a job order costing system, may be treated in all of the following
ways, EXCEPT
A) added to abnormal spoilage and written off.
B) added to the total cost of that particular job.
C) allocated equally to all units at an inspection point.
D) added to all jobs through manufacturing overhead.
E) allocated between normal and abnormal spoilage.
Answer: C
10) When abnormal rework is distinguished from normal rework, and charged to a separate loss account,
which of the following is a likely result?
A) Prices will have to increase on the company's products accordingly.
B) If responsibility for normal spoilage expense is penalized less heavily than the unfavourable efficiency
variances arising from rework, then managers will tend to rework too many spoiled units.
C) If responsibility for abnormal spoilage expense is penalized less heavily than the unfavourable
efficiency variances arising from rework, then managers will tend to rework too many spoiled units.
D) If responsibility for normal spoilage expense is penalized more heavily than the unfavourable
E) If responsibility for abnormal spoilage expense is penalized more heavily than the unfavourable
Answer: D
11) Which of the following is NOT a consideration when accounting for scrap?
A) possibility of theft
B) inventory costing
C) planning and control includes physical tracking
D) decisions as to whether to group scrap with reworked units
E) to assist in measuring efficiency
Answer: E
13) When scrap is insignificant in value,
A) it is recorded when discovered.
B) it may not be recognized until the point of sale.
C) it is recognized at the point of production.
D) it is recorded at its fair market value.
E) it is not necessary to recognize it in the accounting records.
Answer: B
14) Sales of scrap may be traced to the individual jobs in which it occurred when the ________ system is
used.
A) budgeted costing
B) job-costing
C) process costing
D) revenue costing
E) weighted-average costing
Answer: B
15) Which account is debited when scrap is reused as direct material?
A) work-in-process-control
B) materials control
C) manufacturing overhead control
D) scrap inventory
E) manufacturing overhead allocated
Answer: A
16) When scrap is returned to the storeroom, so that it may be used as direct material, which account is
debited?
A) work-in-process-control
B) materials control
C) manufacturing overhead control
D) scrap inventory
E) sales of scrap
Answer: B
Chapter 19 Cost Management: Quality, Time, and the Theory of Constraints
23) Quality of design measures
A) how closely the characteristics of products or services match the needs and wants of customers.
B) how closely the characteristics of products or services match the needs and wants of employees.
C) how closely the characteristics of products or services match the needs and wants of the Board of
Directors.
D) how closely the characteristics of products or services match the needs and wants of competitors.
E) how closely the characteristics of products or services match the needs and wants of union
representatives.
Answer: A
24) Conformance quality is
A) the performance of a product or service according to design and production specifications.
B) the performance of a product or service according to design and customer specifications.
C) the performance of a product or service according to competitor information.
D) the performance of a product or service according to design specifications.
E) the performance of a product or service according to employee specifications.
Answer: A
25) Costs of quality include all of the following EXCEPT
A) correction costs.
B) external failure costs.
C) internal failure costs.
D) prevention costs.
E) appraisal costs.
Answer: A
26) Costs incurred in detecting which of the individual units do not conform to specifications are called
A) correction costs.
B) external failure costs.
D) prevention costs.
E) appraisal costs.
Answer: E
27) Which of the following are typically not included in COQ reports?
A) lost contribution margin from lost sales due to poor quality
B) lost production that results from poor quality
C) lower prices that result from poor quality
D) allocation bases
E) lost contribution margin from lost sales and/or from lost production, nor lower prices that result form
poor quality
Answer: E
28) Warranty repair costs are
A) prevention costs.
B) appraisal costs.
C) an internal failure cost.
D) a marketing cost.
E) an external failure cost.
Answer: E
30) Supplier evaluations are an example of
A) appraisal costs.
B) prevention costs.
D) design costs.
E) external failure costs.
Answer: B
31) Internal failure costs include
A) field repairs.
B) rework.
C) liability claims
D) warranty expenses.
E) supplier evaluations.
Answer: B
32) Prevention costs include all of the following EXCEPT
A) quality engineering.
B) design engineering.
C) product testing.
D) supplier evaluations.
E) statistical process control.
Answer: C
33) Appraisal costs include all of the following EXCEPT
A) inspection.
B) spoilage.
C) product testing.
D) process inspection.
E) depreciation on testing equipment.
Answer: B
34) External failure costs include all of the following EXCEPT
A) scrap.
B) customer support.
C) liability claims.
D) transportation costs.
E) warranty costs.
Answer: A
35) Costs incurred by a nonconforming product detected before it is shipped to customers are
B) appraisal costs.
D) external failure costs.
E) design costs.
Answer: C
36) Preventive equipment maintenance is an example of
B) appraisal costs.
D) external failure costs.
E) rework costs.
Answer: A
37) An example of a nonfinancial measure for customer satisfaction is
A) delivery delay.
B) employee turnover.
C) number of defects on the production line.
D) process yield.
E) number of employees trained.
Answer: A
38) An example of a nonfinancial measure for customer satisfaction is
A) Average manufacturing time for for key products.
B) Contribution margin.
C) Percentage of products that fail soon after delivery.
D) Number of employees trained on managing bottleneck operations.
E) Number of units reworked.
Answer: C
41) When an average unit of time declines by a constant percentage each time that the cumulative
quantity of units produced is doubled, it is known as
A) cumulative average time.
B) incremental unit time.
C) last unit time.
D) relative unit time.
E) cumulative unit time.
Answer: B
42) A learning curve is a function
A) that measures the decline in labour-hours per unit due to workers becoming better at a job.
B) that increases at a greater rate as workers become more familiar with their tasks.
C) where unit costs increase as productivity increases.
D) that is linear.
E) that measures productivity improvements from new technology.
Answer: A
43) An experience curve
A) is a narrower application of the learning curve.
B) measures the decline in cost per unit as production decreases for various value-chain functions such as
marketing as production increases.
C) only measures the decline in labour-hours per unit as units produced increases.
D) measures the increase in cost per unit as productivity increases.
E) measures the increase in labour-hours per unit as units produced increases.
Answer: B
5) Which of the following does NOT pertain to control charts?
A) They plot a series of successive observations of a particular step, procedure, or operation.
B) They plot each observation relative to specified ranges that represent the expected distribution.
C) They are used in statistical quality control.
D) They plot only those observations outside specified limits.
E) They plot each observation relative to specified ranges that represent the expected distribution, but
only those observations outside specified limits.
Answer: D
6) When using a control chart, a manager does not investigate the activity when
A) most observations are outside the preset range.
B) all observations are outside the preset range.
C) all observations are within the range of preset standard deviations.
D) most observations are within the range of 2 standard deviations.
E) all observations are determined to be non-random.
Answer: C
7) Which of the following indicates how frequently each type of failure occurs?
A) cause-and-effect diagram
B) control chart
C) frequency chart
D) Pareto diagram
E) both frequency charts and Pareto diagrams
Answer: E
8) A graph of a series of successive observations of a particular step, procedure, or operation taken at
regular intervals of time is a
A) control chart.
B) Pareto diagram.
C) cause-and-effect diagram.
D) fishbone diagrams.
E) learning curve.
Answer: A
9) Statistical quality control includes a control chart that
A) graphs a series of random events of a process.
B) plots each observation relative to specified ranges that represent the expected distribution.
C) plots control observations over various periods of time.
D) plots only those observations outside specified limits.
E) plots only those observations within one standard deviation from the mean.
Answer: B
15) Which of the following are not nonfinancial measures for evaluating customer satisfaction?
A) total sales per customer
B) customer response time
C) number of customer complaints per month
D) ratio of defective units to good units shipped to customers
E) timeliness of delivery
Answer: A
16) The Cost of Quality measure has all of the following advantages EXCEPT
A) being a useful measure of comparing different quality improvement projects.
B) serving as a common denominator for evaluating tradeoffs among prevention and failure costs.
C) focusing on how costly poor quality can be.
D) being indicators of long-term performance.
E) setting priorities for achieving maximum cost reduction.
Answer: D
17) Regarding the means by which relevant costs and benefits are evaluated when evaluating quality
improvement, the key question is:
A) Which alternative solution will make the customer happiest?
B) How will total costs and total revenues change under each alternative solution?
C) Will the employees of the company be able to implement the change?
D) How long will it take for the improvement program to be fully functional?
E) How long will the training period be?
Answer: B
13) Which of the following is not included in customer response time?
A) order delivery time
B) order manufacturing time
C) order waiting time
D) order receipt time
E) order opening time
Answer: E
14) Which of the following are time drivers?
A) bottlenecks
B) limited capacity
C) uncertainty as to when customers will order products
D) average number of orders per customer
E) uncertainty as to when customers will order products, limited capacity, and bottlenecks
Answer: E
15) Manufacturing lead time includes
A) all indirect time.
B) waiting time.
C) marketing time.
D) time to process the customer's order to delivery.
E) all indirect time and waiting time.
Answer: B
16) ________ is the amount of time from when a customer places an order for a product or requests a
service to when the product or service is delivered to the customer.
A) A bottleneck
B) A time driver
C) Customer response time
D) Manufacturing lead time
E) Quality customer time
Answer: C
17) On-time performance is
A) the time it takes distribution to pick up an order and deliver it to the customer.
B) within 2 standard deviations of customer response time.
C) within 2 standard deviations of manufacturing time.
D) equal to customer response time, divided by the number of orders from a specific customer.
E) when the product is delivered at the time scheduled to be delivered.
Answer: E
18) ________ refers to the average amount of time that an order will be in line before it is set up and
processed.
A) Average manufacturing cycle time
B) Average customer response time
C) Average waiting time
D) Average on-time performance
E) Average setup time (per cycle)
Answer: C
10) A company would subordinate all bottleneck production to non-bottleneck machines when
A) the bottleneck resource was temporarily unused.
B) setup time on the non-bottleneck machine is higher than on the bottleneck machine.
C) setup time on the non-bottleneck machine is less than on the bottleneck machine.
D) it intends to increase throughput contribution.
E) it wants to produce at least a minimum buffer inventory.
Copyright © 2013 Pearson Canada Inc. 19-53
11) Which of the following statements related to the theory of constraints is/are true?
A) Sales less direct materials costs equals throughput contribution.
B) Throughput contribution equals sales plus direct materials, and the theory of constraints focuses on
revenue and cost management when an organization is faced with bottlenecks.
C) Throughput contribution equals sales plus direct materials.
D) The theory of constraints focuses on process-costing when an organization is faced with bottlenecks.
E) Throughput contribution equals sales plus direct manufacturing costs.
Answer: A
12) Increasing throughput contribution and managing bottlenecks includes all of the following EXCEPT
A) workstations without large quantities of jobs to be worked on are ignored.
B) recognize that a bottleneck determines throughput contribution of the entire process related to the
bottleneck.
C) a cost-benefit analysis of alternative actions to increase bottleneck efficiency.
D) short-run time horizons.
E) a cost-benefit analysis of alternative actions to increase bottleneck capacity.
Answer: A
13) Producing more non-bottleneck output
A) creates more inventory but does not increase throughput contribution.
B) creates more inventory and increases throughput contribution.
C) creates less pressure for the bottleneck workstations.
D) allows for the maximization of overall contribution.
E) allows for the maximization of overall shop effectiveness.
Answer: A
15) Which of the following is NOT a key step in managing bottleneck resources?
A) Recognize that the bottleneck resource determines throughput contribution of the plant as a whole.
B) Search and find the bottleneck resource by identifying resources with large quantities of inventory
waiting to be worked on.
C) Keep the bottleneck operation busy and subordinate all nonbottleneck resources to the bottleneck
resource.
D) Reduce the number of employees who work in the bottleneck area.
E) Take action to increase bottleneck efficiency and capacity.
Answer: D
Diff: 2 Type: MC
16) Which of the following sets of sentences has two statements which are true?
A) Poor quality is more costly at a bottleneck workstation than it is at a nonbottleneck workstation. The
cost of poor quality at a bottleneck workstation is the cost of materials in waiting.
B) Throughput contribution increases only by increasing bottleneck output. Throughput contribution is
not increased when nonbottleneck output is increased.
C) The cost of poor quality at a nonbottleneck operation is the cost of materials wasted. Increasing idle
time at the bottleneck operation helps relieve the delays at the nonbottleneck operations.
D) The cost of poor quality at a bottleneck operation is the cost of materials wasted. Increasing idle time
at the nonbottleneck operation helps relieve the delays at the bottleneck operations.
E) Throughput contribution increases only by decreasing bottleneck output. Throughput contribution is
not increased when nonbottleneck output is increased.
Answer: B
17) Which of the following statements is TRUE?
A) The elimination of defects always increases productivity.
B) Nonbottleneck operations should be refined for high efficiency before starting on bottleneck
improvement because nonbottleneck operations are generally easier to correct and improve.
C) Throughput contribution is not increased when nonbottleneck output is increased.
D) Quality and time are seldom related in service industries.
E) The elimination of defects always decreases revenues.
Answer: C

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Chapter 2 An Introduction to Cost Terms and Purposes

45) Classifying a cost as either direct or indirect depends upon

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